Employers look to cut back on spousal coverage

Updated at: 09/12/2013 4:05 PM
By TOM MURPHY

Your company may be having second thoughts about the health insurance it offers to your spouse. That means you might wind up paying more for that coverage or have to switch your spouse to another plan as early as next year.

Some employers are considering adding a surcharge to cover the health care expenses of their workers’ spouses. Others, like package deliverer United Parcel Service Inc., are excluding spouses from coverage if they are able to get insurance through another employer.

Twenty percent of nearly 600 large employers in a survey completed earlier this year charged a spousal surcharge in 2013. An additional 13 percent plan to do so next year, according to the study, which was conducted by benefits consultant Towers Watson and the nonprofit National Business Group on Health. Those surcharges average about $100 a month, or roughly double what they averaged a couple years ago.

The study also found that 4 percent of companies excluded spouses from their health plans when similar coverage was available through the spouse’s employer. And another 8 percent planned to do so next year.

The changes, which many companies will announce as part of the open enrollment period this fall for health plans that start Jan. 1, are an effort by employers to control rising health care costs. Employer-provided coverage is the most common form of health insurance in the U.S., covering about 149 million workers, according to the nonprofit Kaiser Family Foundation. And benefits consultants say that total could grow next year when the health care overhaul starts requiring most U.S. residents to have insurance.

Tracy Watts, a senior partner at benefits consultancy Mercer, said companies "are looking for ways to still provide this (health insurance) benefit that is so valuable to their employees but at the same time manage how much they can afford to pay for those benefits."

When considering possible cuts, health care costs for spouses is an area employers consider because employees’ spouses tend to use the health care system more, and thus, are more costly. In fact, plans paid an average of $5,540 in medical claims per person annually for spouses last year, $4,088 for employees and about $2,000 for children and other dependents, according to Mercer.

In some cases, benefits experts blame the difference on the fact that the spouse is often a woman. Women tend to use the health care system more as they move through their 20s and into middle age, especially if they have children. Conversely, men generally use it more later in life.

As a result, companies are rethinking spousal coverage. Although some employers expect to add surcharges for spousal coverage or are paying a smaller share of the bill for coverage that extends beyond the individual employee, a relatively small percentage of companies are planning to not cover spouses that can get benefits elsewhere.

UPS, for instance, announced this year that it plans to drop health insurance benefits for working spouses of its nonunion employees if they can get coverage elsewhere, starting Jan. 1. The Atlanta-based company, which employs about 323,000 people in the United States, estimates that 15,000 of the 33,000 spouses it covers will be dropped.

The University of Virginia also decided to drop coverage for spouses, starting Jan. 1, if the spouse has access through his or her own employer to affordable health care. The university’s health plan covers about 20,000 people.

The Associated Press also will require spouses of non-union employees in the U.S. to seek coverage from their own employer, starting Jan. 1. Those spouses still will be able to enroll in AP’s plan for secondary coverage, which could provide an added level of payment once the spouse’s main insurance has paid out its coverage on a claim. The AP, which has 1,785 full-time employees in the U.S., also is negotiating a similar requirement for union-covered U.S. workers.

McGregor McCance, a spokesman for the University of Virginia, said that the university "wants to take steps today that can help it provide good benefits in the future but also contain the rising costs caused by a variety of sources."

The exclusion of spouses will likely grow faster among smaller employers. Those companies have faced big cost hikes in recent years, in part because they have less negotiating leverage over the premiums they pay. They are more likely to be aggressive in corralling costs.

But overall, companies have to consider spousal exclusions carefully before taking such a step, said Randall Abbott, a senior health care consultant with Towers Watson.

"You can’t just do what everybody else does," Abbott said. "You have to step back and say, `What would this mean to my employee population?’ It’s a pretty complicated decision."